American Eagle Outfitters 2011 Annual Report Download - page 47

Table of Contents
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of January 28, 2012. As a result of the
Company's annual goodwill impairment test, the Company concluded that its goodwill was not impaired.
Intangible Assets
Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets' estimated useful lives.
The Company's intangible assets, which primarily include trademark assets, are amortized over 15 to 25 years.
The Company evaluates intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of
the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of
the estimated future undiscounted cash flows are less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated
fair value. No intangible asset impairment charges were recorded during Fiscal 2011, Fiscal 2010 or Fiscal 2009.
Refer to Note 8 to the Consolidated Financial Statements for additional information regarding intangible assets.
Deferred Lease Credits
Deferred lease credits represent the unamortized portion of construction allowances received from landlords related to the Company's retail stores.
Construction allowances are generally comprised of cash amounts received by the Company from its landlords as part of the negotiated lease terms. The
Company records a receivable and a deferred lease credit liability at the lease commencement date (date of initial possession of the store). The deferred lease
credit is amortized on a straight-line basis as a reduction of rent expense over the term of the original lease (including the pre-opening build-out period) and
any subsequent renewal terms. The receivable is reduced as amounts are received from the landlord.
Self-Insurance Liability
The Company is self-insured for certain losses related to employee medical benefits and worker's compensation. Costs for self-insurance claims filed
and claims incurred but not reported are accrued based on known claims and historical experience. Management believes that it has adequately reserved for its
self-insurance liability, which is capped through the use of stop loss contracts with insurance companies. However, any significant variation of future claims
from historical trends could cause actual results to differ from the accrued liability.
Co-branded Credit Card and Customer Loyalty Program
The Company offers a co-branded credit card (the "AEO Visa Card") and a private label credit card (the "AEO Credit Card") under the AE, aerie and
77kids brands. These credit cards are issued by a third-party bank (the "Bank"), and the Company has no liability to the Bank for bad debt expense, provided
that purchases are made in accordance with the Bank's procedures. Once a customer is approved to receive the AEO Visa Card or the AEO Credit Card and
the card is activated, the customer is eligible to participate in the credit card rewards program. Customers who make purchases at AE, aerie and 77kids earn
discounts in the form of savings certificates when certain purchase levels are reached. Also, AEO Visa Card customers who make purchases at other retailers
where the card is accepted earn additional discounts. Savings certificates are valid for 90 days from issuance.
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